| What is meant by market segmentation?Market | | | | databases in terms of purchase behavior. Other |
| segments consist of groups of people or organizations | | | | segments are based on consumers' motivations and |
| that are similar in terms of how they respond to a | | | | concerns. Marketer choose this because motivations |
| particular marketing mix or in other ways that are | | | | and concerns are what cause consumers to act on |
| meaningful for marketing planning purposes.The entire | | | | an offer.We don't think that there is only one "correct" |
| field of market segmentation is based on this idea, that | | | | way of doing segmentation research, nor that there is |
| consumers have differing needs. They will find value in | | | | a single set of segments waiting to be "discovered." |
| different products. They will respond differently to | | | | While the analysis needs to employ objective statistical |
| marketing communications. They will gravitate toward | | | | methods, any number of judgments, preferences and |
| different price points.Because of this, businesses | | | | practical considerations go into the design of the |
| operate more efficiently if they can act on those | | | | process and the final determination of the segment |
| differences. A business that tries to offer a single | | | | structure. The same dataset can yield different |
| undifferentiated product with generic marketing support | | | | segments.Market segmentation spotlights opportunities |
| will always lose out to more nimble competitors who | | | | for health plans to improve marketing and sales, staff |
| have specific targets and know how to serve | | | | training, customer service, new enrollee intake, business |
| them.We often work for health plans. In the Medicare | | | | planning, and public relations. It will be used by health |
| Part D world for instance, health plans are struggling to | | | | plans that want to assure they emerge from this |
| make sense out of new regulations while meeting | | | | period of dramatic Medicare market change as a |
| very tight deadlines. But today's difficulties are going to | | | | coverage provider of relevance and viability. Part of |
| give way to a market where segmentation will be of | | | | this means achieving sales and marketing goals. Part |
| great benefit because mass marketing will not | | | | of this means establishing a market position where |
| work.Which Segment?It is obvious that all competitors | | | | consumers think of you as you'd like them to think of |
| cannot target the same segment and succeed. A | | | | you.Compared to other forms of marketing research, |
| common mistake is to assume that you must focus on | | | | the sample sizes for segmentation studies tend to be |
| the "heavy buyers" who, in reality, are often not the | | | | large. The simple reason is that you need to be able to |
| most profitable group. For example, a consulting firm | | | | profile multiple sub-samples (the segments) with a high |
| may decide to forego targeting Fortune 500 (TM) | | | | degree of precision, rather than just the total sample. It |
| firms that are fiercely contested by the Big Four | | | | is unusual to use fewer than 500 and not unusual to |
| accounting/consulting firms and instead pursue middle | | | | use 2,000-3,000.AnalysisThe most complex and |
| market firms. "Sub prime" lenders and credit card | | | | opaque part of segmentation research is the derivation |
| companies know exactly who their prospects are, and | | | | of the segments-that literally means dividing the sample |
| do not bother advertising in Money magazine or | | | | into a small number of exclusive clusters. This is almost |
| funding public television shows. Part D players may find | | | | always done by applying some form of statistical |
| market niches among seniors with, for example, | | | | cluster analysis. The analyst will typically try several |
| private Medigap policies and specific interests or needs | | | | different cluster "solutions." While there are objective |
| that the plan can address.For health plans, market | | | | statistical measures of the quality of a cluster solution, |
| segmentation is not common. Part of this is due to | | | | they are no more important than informed managerial |
| health plan cultures developed to serve large | | | | judgment. Researchers oftenl offer two or three |
| employer-based health plans and retirees. But | | | | possibilities to discuss.The "right" number of segments |
| Medicare Part D is an unprecedented public-private | | | | is subjective, but in practice companies tend to settle |
| effort to create a consumer market. And Medicare's | | | | on four to eight segments. In a diverse, complex, and |
| Part D program is just one element of a far reaching | | | | lucrative category more might be called for.Agreeing |
| effort to use private health plans to control Medicare | | | | on the number of segments, as well as the labels that |
| expenses. We believe the market understanding | | | | will be attached to them, always requires careful study |
| developed through segmentation will serve in a variety | | | | of their full profiles. While the segments may be |
| of ways.Identifying and targeting one or a few | | | | defined with one class of basis variables (e.g. attitudes |
| segments instead of the entire market allows the firm | | | | about fashion and shopping), you always need to |
| to use its resources more effectively. Market | | | | describe the segments in terms of other variables (e.g. |
| segmentation means products and messages more | | | | demographics, spending, media preferences, preferred |
| aligned with the needs of selected | | | | brands) that were not part of the definition of the |
| consumers.Researching SegmentsSome type of | | | | segments.ApplicationAn important deliverable from |
| systematic research is required as a foundation for | | | | most segmentation research is a tool for classifying |
| market segmentation. Most often, this research entails | | | | other consumers into the segments. This could be a |
| a sample survey which should be done by research | | | | formula where by asking a small number of questions |
| experts.Segmentation research addresses a set of | | | | you can place a "new" consumer in one of the |
| fundamental questions: | | | | segments. It could be a set of logical rules ["if combined |
| 1. How many segments are there? | | | | account balances >$10,000 + have at least three |
| 2. How large is each segment? | | | | accounts + non-mortgage debt < $20,000: assign to |
| 3. How do you define the segments? | | | | segment G"].ConclusionMarket segmentation is a |
| 4. How do you describe the segments?Segments are | | | | far-reaching strategy that can benefit players.The |
| typically defined by dimensions such as:- Behavior-such | | | | underlying rationale is to use your resources more |
| as the frequency of purchasing, total spending, or the | | | | efficiently by serving consumer needs better. The |
| mixture of stores shopped (switching, investigating, | | | | mechanism is to treat the market as consisting of |
| comparing, delegating decisions), or- | | | | multiple segments with different needs, rather than as |
| Characteristics-such as geodemographics for | | | | a mass market where "average" really suits no one |
| consumers or SIC codes for businesses (health | | | | very well.The research requires a sample survey. It |
| conditions, subsidy status, current coverage status), or- | | | | defines and describes segments from which the health |
| Attitudes-such as financial sophistication, fashion | | | | plan can choose one or more targets. We believe |
| orientation, or disposition to adopt new technologies | | | | playser in the new Medicare market are especially |
| (interest, optimism).The variables that are used to | | | | ready to get more "bang for the buck" by more |
| define the segments are called the "basis." The basis is | | | | precisely meeting segments' needs and by using |
| chosen in light of how the segmentation will be applied. | | | | marketing tools to which that segment will respond. |
| Direct marketers, for instance, carefully dissect their | | | | |